Despite the tough economy and rising living cost, Malaysia’s credit card usage is on the rise and there seems to be no stopping it. This is also in spite of the recent Global Survey of Saving and Investment Strategies by Nielsen revealing that 6 out of 10 Malaysian prefer to use cash over the plastic. Credit cards have become one of the most essential and common financial instruments accepted worldwide. The widespread usage of credit cards is largely attributed to its cashless convenience, especially during the period of strong growth in electronic payment sector (e.g., online purchase payment transfer). Additionally, many claim that owning a number of credit cards reflects a symbol of wealth and social status.

The ease of obtaining a credit card and its transaction convenience has largely changed consumer spending habits. One of the most commonly observed is compulsive buying behaviour. Taking us by surprise, Malaysian household debt has surged to 83% against our Gross Domestic Product (GDP) as of last year – the highest for a developing country in the region. According to Bank Negara statistics, credit card loans in 2013 amounted to RM32.3bil, an astounding number indicating Malaysians spend more than they earn.

The impact is most profound on young adults. Being the largest consumer group, young adults are targeted by credit card issuers with attractive incentive plans such as rebates and rewards. As a result, many overspend their monthly income to maintain a lifestyle of “gratifying today and sacrificing tomorrow”. Leveraging credit cards to afford this lifestyle is easy, convenient and therefore attractive. Many are not aware of the serious implications of overspending on credit card.

Besides the need to pay very high interest on unpaid credit card debts, these debts have a negative effect on the individual’s credit score. They also risk bankruptcy as a result of their inability to repay debts. Credit Counselling and Debt Management Agency’s (“AKPK”) Corporate Affairs and Communication Head Devinder Singh once said that Malaysian young adults risk being declared bankrupt due to living beyond their means and not being knowledgeable in the fundamentals of financial management.

So what could be some useful advice to many young adults out there to avoid overextended financial consumption and consequently suffer from the malaise of debt?

• Debit card: Use debit card instead of credit card to better control spending patterns. Using money directly from the owner’s bank account can prevent one from spending beyond his financial ability.
• Education on financial management: Seek to understand financial management from public financial seminars, forums, expert advice or utilising online resources to manage expenses wisely.
• Do a personal budget for the next 12 months. Create a simple spreadsheet. Start with what you have in the bank right now, calculate your net income every month and build in major expected expenditures. Budget in a reasonable amount of unexpected expenses and what you want to save every month.
• Trade-off: Ask yourself if you really need this. Be conscious of Impulse purchases that may override logic.